Testing the Relationship Between Government Spending and Revenue: Evidence From GCC Countries
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Summary:
The paper examines the direction of causality between total government expenditure and revenue in oil-dependent GCC countries by utilizing a cointegration and error-correction modeling framework, and by calculating a variance decomposition analysis. In addition, it presents impulse responses to shed light on the dynamic relation of expenditure to a revenue shock. The results confirm expectations that government spending follows oil revenue, suggesting a pro-cyclical expenditure policy to variations in oil revenue. To make budget expenditure less driven by revenue availability, the authorities could resort to a medium-term expenditure framework, so that expenditures can be planned and insulated from volatile short-term revenue availability.
Series:
Working Paper No. 2002/201
Subject:
Expenditure Fiscal policy Fiscal stance Oil prices Oil, gas and mining taxes Prices Taxes Total expenditures
English
Publication Date:
November 1, 2002
ISBN/ISSN:
9781451874365/1018-5941
Stock No:
WPIEA2002201
Pages:
27
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